Cardinal Utility Concept
Introduction
In order to understand the cardinal utility concept we will first try and understand the concept of utility, and further look into why in economics it plays such an important role.
As per the definition from the Meriam-Webster dictionary, Economics is defined as
“A social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services”
From the above definition we can understand that economics focusses on the problem of understanding and dealing with scarcity- the problem of fulfilling the unlimited wants of humankind with limited and/or scarce resources. Because of scarcity, economies need to allocate their resources efficiently. In order
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The law refers to the common experience of every consumer. Suppose a person starts eating pieces of bread one after another. The first toast gives him great pleasure. By the time he starts taking the second the edge of his appetite has been blunted and the second toast meeting with a less urgent want yields less satisfaction. The satisfaction of third will be lesser than of the second. That of the forth less of the third and so on. The additional satisfaction will go on decreasing with every successive toast till it drops down to zero. And if the consumer is forced to take more the satisfaction may become negative or the utility may change into …show more content…
No Change in customers Taste
4. Normal Persons
5. Constant Income
6. Rare Collection etc
Significance of Diminishing Marginal Utility:
The significance of the diminishing marginal utility of a good for the theory of demand is that it helps us to show that the quantity demanded of a good increase as its price falls and vice versa. Thus, it is because of the diminishing marginal utility that the demand curve slopes downward. If properly understood the law of diminishing marginal utility applies to all objects of desire including money.
But it is worth mentioning that marginal utility of money is generally never zero or negative. Money represents purchasing power over all other goods, that is, a man can satisfy all his material wants if he possesses enough money. Since man’s total wants are practically unlimited, therefore, the marginal utility of money to him never falls to zero.
Law of Equi-Marginal Utility
Owing to multiplicity of wants and scarcity of means, wants are competitive. Thus, we have more urgent and less urgent wants. We always tend to balance within our mind whether to buy a little more or a little less of any commodity, it seems that we are trying to balance the marginal utility of the commodity and that of
Economic: of, relating to, or based on the production, distribution, and consumption of goods and services “http://www.merriam-webster.com/dictionary/economic”
The Theory of Utility teaches that we make our decisions in life based on the basic principle of maximizing happiness – which can be measured in pleasure and pain. Morality can also be defined as that which brings about the largest amount of happiness, and the least pain. Unlike other theories, however, Utility states the happiness of all is to be considered over the happiness of one. When faced with a choice, one must choose the option that will cause the greatest pleasure and the least pain. Applying this part of the Utilitarian argument to the supplied scenario, it would seem that Utility would say stealing the ice cream and breaking the law are the morally right course of action. However, Utility continues on in its teaching stating that
As with the emerging theory of capitalism in the 18th and 19th Century England, we could speak of “pleasure” as “pluses” and “pains” as “minuses.” Thus the utilitarian would calculate which actions bring about more pluses over minuses.
The rational consumer behavior model is founded on four assumptions: diminishing marginal utility, non-satiation, free disposal, and whole-income usage. Diminishing marginal utility suggests that added happiness, given by each additional unit, decreases. Added utility can never reach zero based on the assumption that our desires for a good are non-satiable, or that more is better. Free disposal states that no amount of a good can be considered too much logistically. Lastly, it is assumed that
The first principle in individual decision-making is facing a trade-off. In order for individuals to accomplish their goals or to obtain something they desire, there is usually something that must be given up or traded to accomplish that. In Chapter 1 Principles of Economics, efficiency vs. equity is discussed which helps further explain this principle. Society is always desiring to obtain the most for their money; getting the best they can. This is called efficiency. While trying to get the most out of our everyday decisions, we must also consider equity and making sure that the economic prosperity of our decisions is fairly distributed.
Scarcity is one of the most basic and crucial points to understand in microeconomics.1Scarcity means that we cannot have all the needs and wants to satisfy our desires. Scarcity can be applied to almost anything. Due to the scarcity of products we must make a choice of what we want. We must choose whether to do one thing or another by what we value to be most important to us. This, therefore, leads to us opportunity cost. Usually when one has to make a decision over what to do, buy, or build, it is narrowed down to two things. We might choose what satisfies our desires, what is more economical, or what is needed more. The choice that we do not take is our opportunity cost, the choice that we value less. Scarcity, choice, and opportunity cost are all related and interlaced with one another. If resources were unlimited we would never have to choose what is more important to have because we would have it all. A good example of applying scarcity would be with time. Have you ever had to decide whether to stay home and study or go out and party? By choosing to go out and party we take time away from our studying. This is a choice that we have to make and whatever we decide not to do is our opportunity cost.
In the article “Consume Less and Be Happy”, it mentioned on page 7 that “these studies show for example that money can buy happiness only up to a certain point”. Happiness in a life comes from within and the surroundings of an area one sets themselves in. For example, being at the beach or around a lake can fill a person with happiness that money can't necessarily buy. In the article “Stuff Is Not Salvation”, Anna Quindlen comes across a family that mentions having less means more happiness and more meaning behind it all. Sure, happiness could be filled with buying an expensive bag or name brand shoes, but the happiness won't linger long because eventually what's new becomes old. The meaning behind having less is greater than having it all and still feeling empty. Therefore all the consumption of the people around the world is just a great disadvantage to a growing life. All the money in the world wouldn't make the richest man pure and happy. With this as well, problems such as the attitude towards consumption gets caught up in this urge
Previous work on this question has assumed that scarcity does not aftereffect basic characteristics because “neoclassical economics maintained that people were rational, selfish actors who consistently made decisions in their own best interests” (Cara Feinberg, 2015). In other words, this means neoclassical economics believed that individuals make decisions that best suits them. However, more recent work has tentatively found that conditions of scarcity inevitably causes counterproductive behavior. In the article “Science of Scarcity”, author Cara Feinberg, introduces the works of Mullainathan and his colleagues, Eldar Shafir, and Anuj Shah. Theses researchers conducted different scientific trials to prove how scarcity of money effects both a person's basic characteristics and their cognitive
The economic problem is that resources are scarce relative to the purposes to which they could be put. (Bized, 2012) Therefore, as a result, choices have to be made about how to use resources. Another term for the economic problem is 'scarcity and choice'. Money may not be a solution to the economic problem. However, to some extent it is, if used as capital for investments.
Another economic concept that affects everyone in day to day life is the law of diminishing marginal utility. This law says that the more a product is consumed,
Economics is the study of how best to allocate scarce resources throughout an entire market. Economics affects our lives on a daily basis, whether it is on a business level or a personal level.
Since resources are limited and human wants are unlimited, people and societies must make choices about what they want most or put more simply, "What you would have done if you didn't make the choice that you did". Each choice involves costs. The cost-of-production theory of value is the theory that the price of an object or condition is determined by the sum of the cost of the resources that went into making it. The cost can comprise any of the factors of production (including labor, capital, or land) and taxation.
Scarcity is what causes people to make choices. Our resources are finite, or not infinite. However, for some of these resources we demand more than can be produced. This causes the cost of these resources or items to increase. These limited items are what cause us to make choices. These choices are also limited to what we are able to provide as payment. This causes us to analyze opportunity cost.
The economists says Economics is a study of production ,distribution and consumption of wealth in society, Its basic function is to study how human activity at individuals, households, firms and national level to maximize their gains from their limited resources and opportunities. People have limited number of needs and wants which must be satisfied such as food, clothing, shelter and other stated needs. Some of them are material needs, psychological needs, and emotional needs. However, no one would choose to live at the level of basic human needs if they want to enjoy a better standard of living. This is because human wants (desire for the consumption of goods and services) are unlimited. Every individual has their own tastes and preferences, it doesn’t matter whether a person belongs to which social class, and he or she wants always something more. Therefore the basic economic problem is that the resources are limited but wants are unlimited which forces us to make choices. Economics is the study of this allocation of resources, the choices that are made by economic brokers. According to Adam Smith, the Father of Economics, defined economics as the study of nature and uses of national wealth
The principle of Utility is considered as the “greatest happiness principle”. Mill defines this principle as actions are right if they tend to promote the most happiness and wrong if they tend to produce the reverse of happiness (Utilitarianism, 7). There have been many arguments against the principle of utility. People who are against this principle argue that there is no time to calculate what generates the most happiness in a given situation. Mills responds to this objection by explaining how secondary moral reasoning and the fundamental principle of morality are taken into account when deciding what promotes the most overall happiness. After explaining his argument, I believe Mill succeeds in responding to the objection, he explains why it shouldn’t be a problem when weighing the best possible outcome by using the secondary moral rule as the first principle.